The U.K.'s Green Investment Bank struck its first wind power-funding deal, contributing to a 224 million-pound ($365 million) loan for a facility off the coast of England that's the largest operating in the world.

Banco Santander SA, Lloyds Banking Group Plc (LLOY), Royal Bank of Scotland Group Plc and Siemens Bank GmbH are also participating in the seven-year loan, according to a joint statement today from the GIB, other lenders to the project and its owners.

The 367-megawatt farm off Cumbria is the world's largest offshore wind farm in operation, supplying as many as 340,000 homes a year with power. Other stakes are held by SSE Plc (SSE), with 25.1 percent, and Dong Energy A/S, with 50.1 percent.

Green Giraffe Energy Bankers advised PGGM and Ampere.

This has been - again - a very difficult deal to close, and it's taken a lot of people a number of sleepless nights to make it happen. A refinancing of an existing operational project may not sound very exciting or difficult (after all there is no construction risk anymore, we know the project is performing), but what makes this one unusual is, as noted in the press release, that

This financing (...) is the first financing of a project minority stake in the commercial banking market.

That means that the banks are not lending to the project company, they are lending to a company that owns a part of the project company, and has only indirect rights on the project assets and revenues, alongside other shareholders. Project finance is about banks have almost full control over the projects (or at least the right to step in at any time), but in this case, the banks don't have that, and have to rely on commitments by the group of shareholders and specific minority rights - ie they can prevent a number of things they don't like from happening, but they cannot force the company to do things they want unless the other shareholders agree. And that's not a position banks are very comfortable with - especially over long periods.

Nevertheless, the banks agreed to lend around 70% of the overall amount of the investment.

What makes this an interesting precedent is that it shows a path for the big utilities, which want to keep control of the projects they invest in, to sell minority stakes in their projects, which allows them to recycle capital, to new types of investors - those that need leverage to invest (as opposed as those that would be willing to put up the whole amount on their balance sheet), without giving up as much control to banks as they would need to in a traditional project finance structure. Here, the minority investors were a pension fund and an infrastructure fund, exactly the types of investors everybody is clamoring to see enter the sector.

So that makes our second transaction this year (out of 4 altogether in the market) and a nice end to what has been a rather volatile, if busy, year.

Way back when I was in elementary school in Germany, we would called you an "Angeber" (loosely translated "boaster") and would've hated you.

But since this is really cool stuff and I am not in 2nd grade anymore I congratulate on yet another deal closed! Well done and keep up the good work. Any chances for a cool picture diary, I assume you had a few trips with your clients to see the stuff you're working on?

In New Zealand, in the 60s/70s, we would have called you a skite. I don't know if the word is still in use, and I haven't encountered it anywhere else in the world. I'm guessing it's a contraction of the archaic and rather magnificent "blatherskyte".

And I echo the crank's noble sentiments.

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

A blatherskite may either be noisy talker of blatant rubbish or the foolish talk or nonsense that such a person spouts. It's actually a Scots word, really a pair of words, known from the seventeenth century on. These days, though, it's more American than either British or Scots. That came about through one of those curious accidents of linguistic history that make the study of etymology such fun.

Both halves of the word seem to be from Old Norse. Blether is a Scots word meaning loquacious claptrap, which comes from Old Norse blathra, to talk nonsense; it exists in various forms now, such as blather or blither (if you call someone a blithering idiot, as people in Britain often did in my youth, you're using the same word, though most of the meaning had by then been leached out of it). Skate (skite, as Australians and New Zealanders will know it) is more problematic, but is the Scots word for a person held in contempt because of his boasting, which may derive from an Old Norse word meaning to shoot (and, if true, is probably the origin of the American skeet, as in skeet shooting, so that phrase actually means "shoot shooting").

Blatherskite is first recorded in an old Scots ballad called Maggie Lauder, attributed to Francis Sempill (or Semple) and dated about 1643, still well known today. There are various transcriptions of the first verse, one being:

Who wouldn't be in love with beautiful Maggie Lauder? A piper met her going to Fife and asked what people called her. Discouragingly she answered him, "Go away, you vagabond! Be on your way, you talkative boaster, my name is Maggie Lauder".

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

These days I suspect most of Jerome's "trips" are to the banks to collect loads of dosh and also to very expensive restaurants to entertain hugely important clients!!!!

Nevertheless, anything which channels more stable investment into sustainable energy projects has to be a good thing and we should be grateful Jerome is willing to put up with all of those all-expenses-paid trips and dreary meals for the benefit of mankind!

One of the "interesting" bits of my job is that I'm slowly moving away from direct participation to transaction negotiations and to management of multiple deals/contracts in parallel. It's sometimes frustrating not to be in the heat of things (but when you receive yet another 200-page contract there is also relief at not actually having to read it in full), but the management remains light and it gives a good perspective on things too.

And yes, wining and dining clients, contacts and friends all over Europe is a big part of my job and it's difficult to complain about that bit.

Refinancing is easier than financing, so that should not be too scary. Wind power is more incompatible with rigid baseload like nuclear than with flexible plants like fuel-fired plants, so I'm not sure the distinction is this one.

What is clear is that a renewables-rich power system will need lots of fossil-fuel power plants, but not so much fuel fuel - so it will be good for plant manufacturers, for smart operators who sell availability of their plant rather than actual production, and less so for fuel suppliers and for power plant operators that were counting on running flat out.

From 1933 baseball card: Notice the strange synchronicity of his first name.

From Wiki: An amazing bit of baseball history...

Much like later sports legends Joe Namath and Muhammad Ali, Dizzy liked to brag about his prowess and make public predictions. In 1934, Dizzy predicted, "Me an' Paul are gonna win 45 games."[2] On September 21, Diz pitched no-hit ball for eight innings against the Brooklyn Dodgers, finishing with a three-hit shutout in the first game of a doubleheader, his 27th win of the season. Paul then threw a no-hitter in the nightcap, to win his 18th, matching the 45 that Diz had predicted. "Gee, Paul", Diz was heard to say in the locker room afterward, "if I'd a-known you was gonna throw a no-hitter, I'd a-throw'ed one too!" He also bet he could strike out Vince DiMaggio four times in one game. He struck him out his first three at bats, but when DiMaggio hit a popup behind the plate at his fourth, Dean screamed at his catcher, "Drop it!, Drop it!" The catcher did and Dean fanned DiMaggio, winning the bet. Few in the press now doubted Diz's boast, as he was also fond of saying, "It ain't braggin' if ya can back it up."

Of course, Dizzy Dean was once asked about his medical condition, replying, "The doctors x-rayed my head and found nothing." Of course, Mr. Dean, or Jerome to his childhood friends, was an astute judge of character. "I am blessed with a strong arm and a weak mind."

With the baseball record set straight, we can now confidently return you to the discussion unleashing the true power and minimal cost of using the wind, greatest renewable energy technology ever deployed over the past few thousand years.

"I ain't what I used to be, but who the hell is?" -- Jerome "Dizzy" Dean

Fracking releasing millions of years of buried radioactivity. Tar Sands. Mountain Top Removal. Lying about wind and solar. Obscuring externalities and not counting them. Lying in Congress. Not releasing pre-Iraq meeting of energy companies divvying up of Iraq's hydrocarbons in the White House.

For some reason, they have explicitly stated that they will stick for now to operating assets. The argument is that this is already helpful enough to recycle capital and thus helps the sector materially.

It's true it helps, so I'm not inclined to criticised, but it is indeed strange that they would not go for greenfield projects too. We'll see.

The Fed is doing its best to not muck up the economy, given the ideological shackles they and the US Treasury work under, which is that anything that fiscal policy can do, monetary policy can do better, therefore there's no space for fiscal policy even at the zero lower bound, where if monetary policy doesn't work, fiscal policy must work even less.

History tells the tale. The federal government has achieved fiscal balance (even surpluses) in just seven periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, 1920-30 and 1998-2001. We have also experienced six depressions. They began in 1819, 1837, 1857, 1873, 1893 and 1929.

Do you see the correlation? The one exception to this pattern occurred in the late 1990s and early 2000s, when the dot-com and housing bubbles fueled a consumption binge that delayed the harmful effects of the Clinton surpluses until the Great Recession of 2007-09.

...

And creating jobs is what we need to do. Until the fiscal cliff distracted us, we all understood that. Today, we have roughly 3.4 people competing for every available job in America. The unemployment rate is like a macroeconomic thermometer -- when it registers a high rate, it's an indication that the deficit is too small.

The depression was caused by fiscal measures. Money is a symptom, it's not the disease.

If surplus rents from privileged property rights are captured for the common wealth by taxes then there won't be asset bubbles will there?

The cause of retail and asset price inflation is by definition and accounting identity rent-seeking - ie the demand for profit/rent in excess of cost.

Retail price inflation is everywhere and always a fiscal phenomenon: asset-price inflation is everywhere and always a monetary phenomenon. Of course, when consumables become assets - as now - we get problems.

This deficit-based banking system is fucked: permanently and irretrievably, and the reason is the systemic imbalance in purchasing power and ownership of productive assets, particularly land.

Only fiscal measures will do, and they will not happen within our perverted 'representative democracy'.

Banks are evolving rapidly into a role as service providers for the simple reason that such risk service provision is capital lite.

By outsourcing market risk, but not credit risk, they facilitated the existing bubbles in equity, commodity and energy markets. When these collapse, we'll see a move to the next adjacent possible.

As regards the fiscal measures necessary to resolve debt and to transition to a low carbon economy, the Public sector power-seekers (as opposed to private sector rent-seekers) in charge of government-as-intermediary have not only seen the steering wheel come off in their hands: they are handing it to the equally powerless front seat passenger.

This book on the End of the Market makes an interesting case that we have seen the end of 'market clearing', but in my view we have seen only the end of a market architectural paradigm.

I think we saw in late 2008 the end of the intermediated market, and that we will see an evolution via a dis-intermediated 'Energy Economy' market possibly one day to a Gift Economy/Economy of Abundance.

"The future is already here -- it's just not very evenly distributed"
William Gibson

The cause of retail and asset price inflation is by definition and accounting identity rent-seeking - ie the demand for profit/rent in excess of cost.

An estimate that sticks in my mind is that 30% of the price of everything today in the USA is due to rent paid to the financial sector. This is probably larger than the effective government tax rate from all levels of government combined, and, in its effects, it is additive. So people, other than those on the receiving end of this flow, have to make do with the 40% of their income remaining to them. The synergy in this case is that the government serves as both tax collector and as the enforcer of the arrangements that enable the financial sector to continue charging such exorbitant rent.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

The name of the game is differential accumulation. As wealth becomes more and more concentrated not only will the economy further be strangled, but I can even imagine a scenario where, with so much of the asset base in the hands of the few, it becomes favorable to their interests to destroy the monetary system so as to facilitate even further looting. It will never be necessary to do so, but it might become desirable to some. It would recapitulate the Morgan Bank's actions in the 1870s in withdrawing gold from circulation after they had gotten the US back on the gold standard. That greatly facilitated their wealth consolidation by enabling them to foreclose on so many to whom they had made loans, capturing not only much of the money loaned but also the asset which secured the loan and most of the increased value the borrowers had added to the enterprises.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

"I think we saw in late 2008 the end of the intermediated market, and that we will see an evolution via a dis-intermediated 'Energy Economy' market possibly one day to a Gift Economy/Economy of Abundance."

That's so cute. Sort of anti-doomer prattle.

There will never be a lack of grasping hands after the surplus, and they're much, much quicker than the government.

(Disclaimer: I do a lot of work with various Siemens entities across the industry)

I'm glad they are participating to such deals - they are obviously very knowledgeable about the underlying projects and they do their job very professionally. And as they are not seen as rivals or competitors by other banks given their status, so they can actually play a useful role in helping solve problems. And they have cash, so you don't worry about them dropping out along the way...

In offshore wind, they can only support projects with Siemens turbines, but in other sectors it's not so clear cut - I know that onshore they can finance projects with other turbine technologies - as long as the turbine choice has already been made.

Which makes sense - availability of financing is a lot more critical to commercial decisions (and deals happening) offshore than onshore.

Onshore wind turbines represent a relatively mature technology, which ought to have achieved a satisfactory level of reliability in operation as plants age. Unfortunately, detailed analysis of the relationship between age and performance gives a rather different picture for both the United Kingdom and Denmark with a significant decline in the average load factor of onshore wind farms adjusted for wind availability as they get older. An even more dramatic decline is observed for offshore wind farms in Denmark, but this may be a reflection of the immaturity of the technology.

The study has used data on the monthly output of wind farms in the UK and Denmark reported under regulatory arrangements and schemes for subsidising renewable energy. Normalised age-performance curves have been estimated using standard statistical techniques which allow for differences between sites and over time in wind resources and other factors.

The normalised load factor for UK onshore wind farms declines from a peak of about 24% at age 1 to 15% at age 10 and 11% at age 15. The decline in the normalised load factor for Danish onshore wind farms is slower but still significant with a fall from a peak of 22% to 18% at age 15. On the other hand for offshore wind farms in Denmark the normalised load factor falls from 39% at age 0 to 15% at age 10. The reasons for the observed declines in normalised load factorscannot be fully assessed using the data available but outages due to mechanical breakdowns appear to be a contributory factor.

Analysis of site-specific performance reveals that the average normalised load factor of new UK onshore wind farms at age 1 (the peak year of operation) declined significantly from 2000 to 2011. In addition, larger wind farms have systematically worse performance than smaller wind farms. Adjusted for age and wind availability the overall performance of wind farms in the UK has deteriorated markedly since the beginning of the century.

Any assessment of the costs of wind power must rely heavily upon assumptions about the
average load factor that will be achieved by new wind installations over their lifetime. It is
standard practice to calculate average load factors by year and country for onshore and offshore
installations as shown in Table 1 (page 40).1 However, such estimates do not provide a
reliable statistical basis for assessing the future performance of wind farms in aggregate. Part
of the reason is that the amount of wind in any month or year is inﬂuenced by long term meteorological
cycles that have periods of many years, notably the North Atlantic Oscillation. In
addition, average load factors do not allow for changes in the composition of wind installations
by location, age, size and other factors.

So Table 1 is only included to be used as an example of the standard method that is contrasted against the author's method.

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I have only skimmed the report, but if it is wrong I don't think it is the math as such (always worth checking of course). Leaving the data, the assumptions of the model and the conclusions.

Here is some things I noted:

Data, offshore (p.22)

Evidence on the performance of Danish oﬀshore installations is both restricted and so poor
that there may be concern that the results are aﬀected by a small number of outliers. Still, the
sample contains a reasonable number of sites with at least 5 years of operating experience and
the decline in performance by age 5 is 38% unweighted and 26% capacity weighted.

So with more data another picture might emerge for offshore with the same analysis. I also note that on my quick read-through I haven't got a firm grasp on where exactly his data comes from.

In conclusions:

While the decline in the achieved performance of onshore wind turbines in Denmark is
much less than that for the UK or oﬀshore, nonetheless the decline in expected output under
standardised wind conditions over 10 years is 10% unweighted and 13% capacity weighted.
These declines accelerate aﬅer age 10 so that the reductions in performance are 17% and 20%
respectively aﬅer 15 years. For UK onshore wind farms the reduction in performance due to
age is much worse at 27% unweighted and 69% capacity weighted by age 10.

Now, all machines age and I don't know expected lifetimes and such, so I don't know what one should expect. What I do find dramatic here is the difference between Denmark and UK. That does not look like a mature technology aging to me. So what is wrong with UK onshore wind?

Going through the model is kind of heavy lifting on the day before christmas, but if you need to hire in your agit-prop division you know where to reach me.

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Well a quick back of the envelope observation without looking at the data

Interesting that the Danish data is "restricted and poor" compared to the UK data, but the Danish data comes in a Zip file that is reported as 18Mb in size, whereas the UK data is only 3Mb now all other things being equal you'd expect the "restricted and poor " data to come out smaller than the good set, not six times the size. That thegood data is then split down into 4 seperate reporting countries only makes me more suspicious.

Any idiot can face a crisis - it's day to day living that wears you out.

wind speeds are usually the weighted average of what production actually is on a site, expressed as if the wind speed were constant (just like full load hours are pretending that the wind turbine is producing at full capacity over that period and nothing at all the rest of the time) an I've always found both measures highly confusing.

I'm pretty sure there's some suspicious recalculation taking place there, simply because it's an easy place to hide it...

He has essentially the same criticisms you have, which is why he doesn't use those, and instead uses standard panel data analysis where he treats wind availability as an unobserved effect fixed in each time step.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

Tl;dr: He's seeing the effect of immature operators and mature technology. Onshore installations in Denmark, where operators are mature, show a performance decline with age which, though statistically significant, is perfectly acceptable.

Long version:
His statistical methods are perfectly standard for panel data analysis. The specification search is kind of sloppy, but his robustness checks seem thorough and come out fine, so I don't think that's a problem. Overall, I like his statistical methods and would probably use similar analysis myself.

The problems start to show up in the interpretation. The correct interpretation of his data is that:

Onshore wind is a mature technology, with perfectly satisfying performance when operated by mature operators (performance degrades by only four percentage points, or 18 % (2.0 % annualized) over a ten-year period - this is not alarming).

British onshore operators are not mature, as evidenced by their considerably steeper degradation of performance.

Either offshore wind technology or the Danish offshore operators are immature. Since this study demonstrates a strong effect of operator experience it is not possible to discriminate between the two, as Denmark ceded leadership of offshore installation to Germany early in the present century.

One worrying effect is that in the British data, capacity-weighted estimates display worse performance curves than unweighted estimates. This is a reverse of the expected effect (and indeed a reverse of the effect observed for both Danish on- and off-shore), and may indicate a major problem with British operators' management of large projects.

The policy analysis is utter garbage on at least two levels: It displays either nearly complete ignorance or mendacious mischaracterization of the existing policy regime, and further bases policy recommendations on the assumption that both the technology and British operators are mature, and that there are therefore no further infant industry economies to harvest.

The executive summary of the paper may be gainfully replaced by Figures 1, 10 and 14, which contain all the conclusions that are both interesting and accurate.

(Incidentally, nuke fans should take heed: Complicated technology depends on mature operators as well as mature technologies, and developing a mature operator and supply infrastructure takes decades.)

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

on item 3 - experience moved to the UK in the late 2000s, Germany will join as of next year when the first industrial scale projects are built there;

on item 3 again: sample for offshore is really small. Apart from what are really R&D facilities, there are 2 projects in the sample for any significant period of time: Horns Rev (160 MW, 2002) and Nysted (165 MW, 2003). Other large projects come online in 2009/2010 (Horns Rev 2, Rødsand). The 2 early projects had to go through major teething problems, but 50% of Nysted was sold last year to PensionDenmark so they obviously think of the project as a long term ongoing concern (and DONG, the operator, must have given them the relevant underlying data)

on item 4: I think large projects in the UK are mostly quite recent, so there may be a learning curve there as well, but the point is to be noted indeed.

I checked the British onshore numbers, and as with the Danish offshore, the decline indicated is not borne out by the numbers :

The normalised load factor for UK onshore wind farms declines from a peak of about 24% at age 1 to 15% at age 10 and 11% at age 15.

If he is saying that, on average a park that starts at 24% will decline after 10 years to 15%, and after 15 years to 11% (which is what his rhetoric would lead us to believe), then that is clearly false.

If, on the other hand, he is saying that the average load factor for all farms at 1 year is 24%, and that the average for farms of 10 and 15 years are 15 and 11%, then that is something entirely different, which I don't believe is supported by the data either (having already caught him out on Danish offshore).

There is so much month to month variability in the onshore data that you would have to do statistics, what me not know how. But just squinting at the data is enough for me. He's a liar, and if you can explain how he comes up with this particular lie, I would be very interested.

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

I'm not clear on precisely what he's doing wrong, but I think he might be using a static model where he should be using a dynamic one. When I do a quick and dirty run on what I think he did, I get autocorrelated residuals, which usually means that you've forgotten a lagged dependent variable in your specification.

I'm not totally clear in how that would give him the sort of results he's getting, but models with autocorrelated residuals take great delight in producing interesting and innovative forms of gibberish.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

So I had a quick look at the raw data (the source Danish spreadsheet with numbers for individual turbines) and yeah, if you graph turbines over 15 years, you can see a clear decline trend.

Depending on the data you choose to look at, you can get something approaching the 20% (i.e. decline from 22% to 18% load factor) cited by ref.org.

Then I thought about the turbines which have 15-year time series. Sure enough, all of them are 600kw or less. The smaller (i.e. older) ones have higher decline rates, probably over 20% over 15 years. The larger machines have smaller decline rates.

Then of course, if you look at the classes of machines which don't yet have 15 years of service, the picture changes...

No surprises here. "Lying with data 101" covers it.

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

I can find no basis at all for the alleged steep decline in Danish offshore wind capacity factor :

The rate of decline in performance is greatest for offshore installations in Denmark, with a fall from load factors of over 40% at ages 0 and 1 to less than 15% by at ages 9 and 10.

Using all the available data in the raw data source cited (I note that there are only two installations with more than ten years of history!), I get the following graph when I calculate load factors :

So let's see : those installations that had over 40% load factor at age 0 still have over 40%, however none of them have yet reached age 9 or 10. What's more, no Danish offshore installation has a load factor of less than 15%. The two oldest are at 20% and 32% respectively in 2011.

Come on Jake, can you find a way of excusing, or even explaining, the way he gets his takeaway quote?

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

If he actually implemented the protocol he states he is implementing on that data, he should not get the results he does. He claims to be doing perfectly ordinary within estimator on fixed effects panel data modeling. That shouldn't turn a figure like the one you have into a figure like the one he gets.

Unless of course he tortured his model in a way that he should know (because it would trigger more than one of the several misspecification tests built into all modern econometric software packages) is wrong.

Good catch.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

Most of these are small. Nysted (2003) and Horns Rev (2002) should have the biggest weighting, but while I recognise Horn Rev's name in the list, I don't see Nysted. Both, as far as I know, have good performance today (and, as I mentioned before, Nysted was sold recently 50% to a pension fund so they would have not done that if performance was declining...)

From the source data (Excel file AnlaegProdTilNettet.xls alleged to come from the Danish energy web site), I filtered the offshore projects. The data is presented as production figures from individual turbines, but in reality it's clearly some sort of composite figure, as each machine of a given type in a given park has the same numbers. So I chose one line from each group. I've double checked, and in the source data, the projects aren't referenced by their habitual names, but the correspondances are clear with a bit of digging.

In the above graph :

Uoplyst = Vindeby

Ukendt = Tunø Knob

2nd and 3rd Uoplyst = Middelgrunden

Horns Rev = Horns Rev

2nd and 3rd Ukendt = Rønland 1

Hav = Samso

The last Uoplyst = Nysted

So this graph contains no aggregation or averaging of any kind, other than that of the source data, and represents capacity factor by year of all the pre-2009 Danish offshore parks.

I eat raw data for breakfast. Great bleeding chunks of it. But I'm a moralist, and I don't like to see data tortured. Clearly the above data must have suffered a great deal to get it to "confess" the trend that Hughes gets from it. Because the trend just isn't there.

There are too many British onshore projects to submit them to the same naive treatment, but from looking at the data, the story is the same.

It would be worth keeping an eye open for press take-up of this atrocity, in order to "set them straight". Better would be to pre-empt them of course...

You see clearly the years when the big farms had to deal with serial defects - very early on at Horns Rev (where all the gearboxes had to be replaced within the first year or two), and after a few years at Nysted (where the gearbox problems were less publicized but did require large scale action with the same performance impact as on Horns Rev). Anf both are now performing at high levels (and have given their respective manufacturers, Vestas and Siemens, massive experience which they are now using profitably on their new turbine models)

And Vindby and Tunø Knob are onshore projects which happen to be in water at the coast, though they were called pioneering offshore. Of course they have the best capacity factors possible onshore, but don't reach current offshore standards. They are meters offshore, if my memory hasn't rusted.

Yep. Teletubbie version: newer wind farms performed well and continue to do so; older ones performed more poorly and still do. Ergo: performance diminishes with age... hmm, isn't this what they call the 'ecological fallacy'? The confounder being the year of construction.

Why am I reminded of the patricide asking the court for clemency on the grounds of being an orphan?

newer wind farms performed well and continue to do so; older ones performed more poorly and still do. Ergo: performance diminishes with age... hmm, isn't this what they call the 'ecological fallacy'? The confounder being the year of construction.

What you have pointed at is standard when a new technology is introduced into the market. The IBM 1401 solid state computer was a huge hit in the market, solving a number of major business problems, when it was introduced in 1959. Five years later IBM introduced the System/360 a technically superior product to the 1401, yet the 1401 continued to sell until it was withdrawn in 1971. Even after IBM no longer sold the 1401 the machines continued to adequately accomplish business tasks; I worked on a 1401 in 1976 (IIRC) programming new business tasks and extending functionality of existing programs.

Let me list a couple of things:

People invest in technology when the existing functionality meets their needs (or financial forecasting, financial ratios, cash flow analysis, & etc.) at a specific point in time.

The GO/NO-GO decision to purchase technology at a point in time is made with the knowledge at that time. (Like, duh.)

It is doubtful the "superior" IBM System/360 would have been built if the "inferior" 1401 had failed in the market.

It doesn't matter if a "superior" machine is available latter when the "inferior" machine is meeting the needs, tasks, goals, financial return, etc. assigned at the time of the GO decision.

Both users and producers of technology climb a learning curve. The users learn how to use the stuff better, the producers learn how to make the stuff better, and (ideally) they interact in a virtuous positive feedback to the benefit of both.

"Professor", Hughes did some earlier work on how expensive the gas backup to wind was, which was published by that former Tory Chancellor's so called think tank. (I refuse to clutter up my mind with their names!)
It was extensively and conclusively debunked by Robert Gross of Imperial, who gave evidence to the relevant Parliamentary committee.
I commented on the FT. http://www.ft.com/cms/s/0/2e0945e2-4a09-11e2-8002-00144feab49a.html#comment-3447592

I still don't have an answer to Jerome's question: how do you get from the numbers in that table to the conclusions drawn by Hughes.

As JakeS appears to recognise the approach, but when trying to reconstruct it runs into errors, I would say that it was done by torturing econometrics software and ignoring errors. It would be interesting to know exactly how (ie what econometrics software, and how it was tortured) but if the possibilities are many I doubt it would be worth the effort.

What I find particularly annoying is that initially, people here accepted his conclusions at face value and tried to find excuses for the dramatic declines he asserts.

I don't see why that would be annoying. Given a report that tries to obfuscate in a number of ways we each have different backgrounds that makes us react more strongly to different things. Assumption of good faith - which is helpful in understanding other perspectives - also applies until one is certain the author is a liar (which could be from the start if one remembers their history). So areas of the report outside what is noted as false is treated as assumed honest. The strenght of this community is the multitude of perspectives.

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Support the coalition, vote EPP-PES in 2009!

It would be interesting to know exactly how (ie what econometrics software, and how it was tortured) but if the possibilities are many I doubt it would be worth the effort.

According to the report, he uses Stata. I have neither training nor license for that, so I can't reproduce precisely what he did.

But, given the number of parameters he's fitting, my guess would be that he ran a simple model and then expanded the number of model parameters until he got a result he liked, and never bothered to check for misspecification.

At least that's how I would do it if I wanted to do cargo cult science for a belief tank: It produces a superficially plausible result and checking the methodology requires surgical reconstruction. Which means people who don't know better (I plead guilty) tend to take it at face value.

(As an aside, I did know that the author was a liar - I just stopped investigating when I'd found the easiest to detect lie.)

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

I'm sorry, I should have made it clearer that the REF (which I flagged in the subject line of my initial comment) was an astroturf organization, and indeed, I was looking for debunking to fight the propaganda.

Indeed. What would be needed here would be something like Skeptical Science for climatology.

Actually it's amazing how omnivorous anti-science fraudsters are: tobacco, climate, wind power, radiation hazard... as long as there is a business model in it. Nigel Lawson's operation being a case in point.

Day-ahead power in Germany turned negative for the first time in at least five years as utilities prefer to pay users rather than halt plants amid low demand, mild temperatures and higher-than-average wind generation.

Baseload next-day power, for supplies delivered around the clock, fell as low as minus 15 euros (minus $19.84) a megawatt- hour, compared with 22 euros a megawatt-hour on Dec. 21 for power delivered today, according to broker data compiled by Bloomberg. That's the first time the day-ahead contract has been negative since Bloomberg started collecting the data in 2007.

(...) Utilities including EON SE and RWE AG (RWE) may prefer to pay users rather than halt fossil fuel-fed plants when turbines and solar cells push power supply above demand.

"Operators may just decide to accept that they are giving away power and money during the Christmas week for a few hours rather than putting up with even higher costs for switching their units off," Juergen Rogalla, head of power plant operations at Stadtwerke Bielefeld GmbH, a regional utility supplying 280,000 households with power and gas, said Dec. 21.

Wind output in Germany is predicted to rise to about 15 gigawatts tomorrow, Meteologica SA, a Madrid-based weather forecaster, said on its website. That compares with an average level of 5 gigawatts, according to data from Leipzig, Germany- based European Energy Exchange AG on Bloomberg.

I look forward eagerly for economists to argue that it is important to halt wind development because it makes electricity too cheap. Perhaps this is a valid economic argument; but I can't see it entering the public debate as such, because of the laugh factor.

Instead, we can expect an increase of spurious attacks on the economics of wind (see above...)

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

to pay for capacity which needs to be available for when wind is not blowing, but which is going to produce much less electricity than before, and

to help the utilities adapt to what is a major shift in the system (and given that we still need them, and pushed them in the past 20 years to make 40-year investments on the basis of a different model, it is not unfair that society bear some of the cost of the transition)

Problem is that these issues are never discussed as such; renewables are presented as expensive and uncompetitive when what they are really is incompatible with the business model of the utilities; regulation is made needlessly complex to hide the fact that the goal is not only to support renewables but also to help utilities deal with the situation (ie transfer money to them discreetly).

And the ignorance of regulators is sometimes stunning.

At a recent French-German meeting on renewables, I asked a senior official at the French ministry of energy what he thought of that fact that large industrial users were not paying for the gross cost of the support regime for renewables (which means that (1) retail consumers see their prices increase more than needed while industrial users see their prices go down thanks to the merit order effect, and (2) this creates a competitive advantage for German-based firms vs French-based ones) and he had not the slightest idea what I was talking about.

At another recent conference, where both the senior economist of one of the large utilities, and a senior energy EU official, I asked if we shouldn't be more open about how renewables hurt the incumbents, so that regulation focuses on transparent correctives rather than tricks that are noxious (renewables are bad-mouthed, it's costly, and the underlying problems are not solved); again, no reaction beyond the usual "renewables cost money, we need more perfect markets, EU-wide market, blabla"

The more I see these "debates", the more I am impressed by the German regulatory framework, and the more I am nonplussed by the lack of action in France (which is still dominated by the "nothing but more nukes" mindset).

....a dis-intermediated market, and the direct monetisation of energy through the use of prepay instruments.

For renewable energy such as wind this monetisation will require a change in the market architecture, since this energy is sold by producers to utilities at a low wholesale market bid price. But intriguingly, such a transformation in market architecture is in the interests of the intermediaries themselves - whether risk intermediaries (aka banks) or trading intermediaries (aka utilities) - since it enables them to minimise their capital requirement by outsourcing credit and market risk to end users, and that is increasingly what is going on.

The really interesting possibility is the monetisation of and investment in carbon fuel savings, because of course such savings - eg a Bristol Green Deal will be made at the retail price.

"The future is already here -- it's just not very evenly distributed"
William Gibson

The opposition Green Party estimates that the companies will save up to 4 billion ($5.3 billion) as a result. The electricity bills for private energy customers and smaller businesses will increase by a commensurate amount.

"It is breathtaking," says Felix Mathes, an analyst at Öko-Institut, a consultancy on environmental sustainability. In many cases the criterion for exempting companies from the charge -- the need to preserve international competitiveness -- doesn't apply, he says. "At least half the companies don't belong on this list," he says.

The list includes coal mines of the companies RAG and Vattenfall, slaughterhouses of poultry businesses such as Wiesenhof, and a number of animal feed producers. Among others on the list are regional makers of sausage and cheese, chocolate factories, solar and bioenergy companies, the Munich municipal utility, oil company Exxon and even the publisher of regional newspaper Weser-Kurier, Bremer Tageszeitungen AG. (My local paper, which is not competitive with anything. CH.)

An extra added benefit is that the companies which profit from the exemption (Exxon? !!!), can also use the proportionately higher consumer charges to rile up the people against "the renewable subsidy."

If you have access to the wholesale market, yes...
In practice, some industrial companies will be able to stop their normal production and make money instead by not consuming the power they would normally use (or by using their backup- typically diesel - generators instead...

In practice, some industrial companies will be able to stop their normal production and make money instead by not consuming the power they would normally use (or by using their backup- typically diesel - generators instead...

But that wouldn't help, would it? Not with negative electricity prices. What you would want to do is store the excess electricity somewhere... like in hydrogen

It does help - the negative price (received by the industrialist for not consuming (because it usually has longstanding orders for power with priority access, which it accepts to cancel) helps to pay for the higher cost of using diesel generators instead of normal power supplies.

Or the gain on cancelling existing power contracts is higher than the margin made with that power on their own industrial process (ie the industrial company makes more money selling its rights to power than actually using the power).

If an industrialist had bid (the day before) for demand of, say, 1MW over a peak time hour, and agreed (at the last minute) to not consume that 1MW, the industrialist will obviously not pay for power it is not buying, but will in addition receive some money for having cancelled its demand.

Obviously, that means the industrialist does not have power in that period, which means that it can either (i) not produce during that period or (ii) use another source of power. The economics of either solution depend on the ability to stop production or not, the marginal cost of the production process (including and excluding electricity) and the availability - and cost - of backup power capacity on site.

The economics further depend on whether the industrialist had hedged or not its power purchases (if it has hedged its purchases, it will get the high spot market price from the counterparty and pay back the agreed fixed price, which can represent significant sums of money and make the interruption of production, or the use of expensive backup, still profitable given the negative payments and the rest)

The markets have reacted favorably, even though significant damage has already been done by not extending it 6 months ago, or earlier. I can not write how much of the supply chain has been decimated already, not to mention the hits to major US OEMs.

Vestas is even saying that the extension will have little effect on its current 2013 output projection of 5 GW globally.

This one year extension could perhaps add another 4- 8 GW to the ridiculously low projection of 1.5 GW for 2013, accent on the 4 GW side. The extension will only be effective if sometime in the next two quarters, it is extended further, or something similar put in place. Period.

As noted in the other thread, the only good news here is that the trigger for the PTC is the start of construction and no longer the connection to the grid, which will give projects a better chance of reaching the milestone before the next "wind cliff" at the end of the year.